Procurement will only be taken seriously in the Boardroom if it can ‘step up’ and demonstrate broader strategic value.
This article reviews our Top 6 Take Away Strategies.

As companies aim to reduce their costs and increase cash flow in response to the global economic crisis, procurement executives have a unique opportunity to show that the procurement function is not just about costs and compliance but is concerned with broader value and innovation.

Procurement needs to be working not just with the spend data, but with the various business units across the organisation and be an integral part of their strategic decision making. 

To be truly integral to the organisation, the procurement offering needs to be mature.  Procurement officers and buyers need to understand the needs of each business unit and their key drivers.  Whilst centralised procurement offers many benefits to the organisation, trying to impose centralised control or central systems only alienates procurement if not done with an understanding for the needs at the coalface of the business.

Tip: Increasing the maturity of the procurement function is critical. This is usually an evolutionary process rather than a silver bullet or big bang solution.

The global credit crisis has lead invariably to companies not being able to pay their bills or worse still, companies going bankrupt.  Now is an important time for organisations to think about the supply landscape.  For example, does the organisation undertake credit checks regularly for your strategic suppliers? Is the organisation measuring who is now taking longer to pay invoices and does the organisation know which markets may cause your organisation supply risks? These may be the ones you want to expedite strategic supply relationships.

Tip: One of the most important strategic undertakings procurement can be involved with is understanding the links between related categories of spend and how these can be influenced. 

For example, the move to virtual servers, and outsourced data warehousing provides benefit for ICT but also provides large costs savings in energy and accommodation.  If looked at purely as an ICT initiative the benefits may not be immediately realisable but by looking at the entire corporate profile these initiatives offer large potential opportunities.

Tip: To become important at the boardroom table focus needs to move from costs to value. 

This means working with suppliers to understand their cost base (and how this can be influenced) and also asking suppliers how they can add more value to the organisation and your customers.

Large centralised procurement departments have difficulty realising sourcing savings from business unit budgets.  Procurement needs to work with departments to support procurement initiatives and ensure savings are built into budgets and agreed upfront.

Tip: If releasing savings is difficult in your business or if your CFO isn’t strong enough to remove savings from budgets, ensure you work with Departments to accurately forecast category expenditure prior to undertaking any procurement activity

This will minimise the potential for the savings to be eaten up by increased demand.  A recent trend has been increased expenditure on mobile phone calls.  While savings may occur against contract, unless budgets have forecast increases, the saving budget position may not be able to be reduced.

Take Aways

1.    Focus Procurements attention on value not cost and look at linkages across Departments;
2.    Ensure procurement considers service transformation and not simply supplier cost reduction;
3.    Use the credit crisis as an opportunity but also develop a procurement response;
4.    Speak to the organisations 10 key suppliers to understand their costs and which costs you can influence;
5.    Ask the organisations suppliers how they can add further value to your organisation and its suppliers;
6.    Ensure procurement is part of the strategic planning process for each Department.